best mini cash isa

OK,
we've looked at the Maxi ISA and some of the rules, regulations and factors
that you need to be aware of before investing your hard earned cash in the
markets, and whether this is the best isa for you. This will depend on many
factors including your age, your view of risk, and whether you are able to
take a long term view of tying up your capital. Now let's look at the sister
product, the mini isa, and remember all the rules governing both the maxi
and the mini are currently changing which I will explain on the following
page.

best mini cash isa explained

The mini isa is very different from the maxi isa in several ways, not
least because it can only contain one element. Unlike the maxi isa, it does
not give you the option to invest a mixture of cash, stocks and shares or
life assurance. So, what exactly can you invest in a mini isa? Well, you
still have the same choices as for the maxi isa as follows :

1. Cash

2. Stocks and shares

3. Life assurance

So what is the difference? The difference is that a mini isa can only
ever contain one of these. So you can hold a cash mini isa, or a mini isa
with stocks and shares or life assurance, but you cannot mix the elements -
they must always be held separately. Now a second key difference is that
under current rules you can purchase two mini isas in any tax year, as
opposed to only one maxi isa. However, if you purchase two mini isas in the
same tax year, one must be a cash isa, and the other must be a stocks and
shares isa. In other words you cannot purchase two of the same

Now, the next difference concerns the amount that you can invest in a
mini isa, which again differs from the maxi isa, which when you think about
it is logical. If you buy a mini cash isa, then the maximum allowed is
£3,000, and for a mini stocks and shares isa, the maximum is £4,000, which
comes to a total of £7,000 as for the maxi isa ( clearly the government
would not allow a situation where you could by two mini stocks and shares
isas, which would then be £8,000! - everyone would buy these rather then the
maxi as it would allow you an extra £1,000 tax free per year, and they are
not that stupid sadly!)

So in summary, with the mini isa we can buy two in any tax year, but only
one of each type. They can however be from different suppliers so if you
like, you can have a cash mini ISA with one company and a stocks & shares
mini ISA with another. This is useful, as investment companies, which
traditionally offer stocks & shares ISAs, often don't offer great interest
rates on cash ISAs. The best cash ISA rates are usually offered by banks and
building societies. So, what are the options for a mini isa ? These are as
follows :

Option One : A single mini isa
with a maximum of £4,000
in stocks and shares

Option Two: A single
mini isa with a maximum of
£3,000 in cash

Option Three : Either or both of the above in
any one tax year

best isas - mini and maxi summary

I realise that the above can be quite confusing if you are reading this
for the first time so in order to try to help clarify things further, I have
created a small table below which I hope will highlight the main points. The
complication arises from the fact that not only do you need to understand
the product itself, each of which have their own rules, but then each type
of isa is dependent on the other with another set of rules. My own cynical
view is that these rules are made as complicated as possible in order to add
some validity to the financial services industry!! In reality, they are not
that complex to understand. I hope the following will summarise the main
points and make everything very clear!

Rules and Regulations

Maxi and Mini

Maxi ISA

Mini ISA

Mini Cash ISA

Mini Shares ISA

Same tax year

No

1

No

-

-

Same tax year

No

No

2

1

1

Different suppliers

No & Yes

No

Yes

Yes

Yes

Maximum allowed cash per tax year

£3,000

£3,000

£3,000

£3,000

No

Maximum allowed shares per tax year

£4,000

£7,000

£4,000

No

£4,000

OK, I think that's about it on the maxi and mini isa and I hope the
above has helped to explain what you can and cannot buy in each tax year.
The rules on topping up are relatively straightforward and I have included a
FAQ page on the site which I hope will address most of the commonly asked
questions. In simple terms, you can top up the isa throughout the tax year,
so for example if you purchased a mini cash isa, you could invest £1,500 at
the start of the tax year, and the balance during the remainder of the year
( say £750 and £750 ) in two further amounts. Once the tax year is completed
you lose the option to top up, and must purchase a new isa in the following
tax year, so any tax saving not taken in the tax year is lost forever and
cannot be clawed back.

Similarly if you purchased a mini cash isa at the start if the year with
£2,000, and then withdrew some of the cash during the year ( say £500), then
the maximum amount you can invest is still £1,000, not £1,500. If no further
withdrawals were made and the remaining maximum investment is made,
the balance at the end of the year would be £2,500. The total amount of
money invested into a mini cash ISA each year is £3,000 regardless of
the number of withdrawals made.

Now let's look at the new rules and regulations being introduced in April
2008, and how they will affect the isa market. More importantly, what
factors do you need to consider now in order to find the best isa for your
money.